The Impacts of Big Four on the privatization of Chinese State-owned enterprises

Abstract

Both the formal introduction of Big Four into China and the privatization of Chinese state-owned enterprises started in the 1990s, but few scholars have studied the relationship between them. Theoretically, Big Four can provide more accurate information about the company’s value to the market through higher quality auditing services, which could reduce information asymmetry during the privatization process. On the other hand, Big Four could convey positive signals to the market by its own good reputation. Generally, SOEs that employ Big Four have better financial performance, which can boost the confidence of private investors. The paper will take A-share listed companies from 2005 to 2018 in China as the sample, select the enterprise ownership and state-owned shares proportion as the proxy variables to investigate whether Big Four has impacts on the privatization of Chinese SOEs. The principal hypothesis is that Big Four can significantly promote the privatization process of SOEs in China after controlling regional and time fixed effects. In addition, the longer the audit period of Big Four, the higher the probability of privatization and the lower the proportion of state-owned shares.